A Guide To The Different Kinds Of Check Fraud That Institutions Need To Look Out For

Different Kinds Of Check Fraud

Published on September 15th, 2021

While checks have long been out of favor in private banking, they still have a large role to play as part of institutional financial exchange, pay, and international transfer. Transit checks, cashiers checks, money orders, and treasury checks are still widely used.

It should come as no surprise, then, that check fraud is still rife. Check fraud isn’t quite as glamorous as it would seem to be if your only reference was the Steven Spielberg movie Catch Me If You Can.

It does, however, cost businesses and institutions millions of dollars each year. Here is a quick guide to the different kinds of check fraud that institutions need to look out for.

1. Paperhanging

Paperhanging is a classic form of check fraud that takes advantage of institutional trust. A fraudster will either write a bad check and make off with goods or open a new, empty account and write checks from it that are impossible to clear. This is not complex fraud. Be aware of any new account holders depositing checks.

2. Forgery

Forgery is the most simple and obvious kind of check fraud – but that doesn’t mean that it is easy to defend against without clever check fraud solutions in play. Forgers essentially pretend to be somebody else.

They do this by either forging the signature on a check or forging the endorsement. Some forgers have become infamous for their signature stealing skills. Perhaps the most well-known signature forger of all time was the early 20th Century American Joseph Cosey.

3. Check Kiting

Check kiting is a scam that makes use of two accounts. Bad checks are written from one account to the other. Before the check clears, the account it has been deposited into will show a financial rise.

Before the bad check is found out, the money will be withdrawn from the second account, and the perpetrators will make off with the money.

4. Check Floating

Check floating is a rather complex and often very minor scam that involves the writing of a bad check in order to take advantage of the ‘float time’ before it enters an account.

Check floaters will write a bad check between two accounts and bounce it between them during the float time – essentially clearing the check with floating hypothetical money attributed by the bank to the check itself.

It is similar to check kiting but does not usually end up costing institutions a loss. Check floating has historically been used by people to acquire rental payments a few days before payday.

5. Chemical Alteration

Also known as ‘check washing’, the forger will use a mixture of chemicals to wash away the ink on a check before filling the blank spaces in with information that suits them.

The chemicals used are solvent-based, which means that they can dissolve the bonds between ink and paper. Check washing is a growing problem in the United States – with criminals breaking into mailboxes and stealing checks used by small businesses at an alarming rate.